Positive Cashflow

[skater]

Hi Skater

With those yields, do you get much capital growth? I am unfamiliar with your side of the world - that is why I ask. If not can you explain your strategy to me or is their a past thread I can read?

Hi Samantha,

When we started out we were on an extremely low income. In order to invest, we had to prove that each one could stand on their own. With over 4000 threads, there are several posts detailing what we did in the early years, if you want to do a search. I can not remember all of them myself. If you read The Interview, a lot of it is in there.

Basically, if a property was not getting a MINIMUM of 10% yeild, then we would not go near it. We had a couple with 20%+ yeild. We sold out of both of them. Although the yeild was good both houses had neighbour problems. We got a small CG with each.

We still hold some of those early properties and, yes, they have all gotten a good CG, with the exception of one Regional area that we still have properties in. Hindsight is a wonderful thing, and if I new then, what I know now, I would have never purchased some of the properties, and in other areas I would have purchased a whole lot more.

 

[quoll]

Graeme, what do you mean when you say it may not fit into one's investing style?

Doesn't really matter if you are looking at cf+ or not you need get sort out the sleep at night factor (SANF), what can your stress meter deal with.

Some people are not comfortable with "high maintenance" tenants, (those that need to get sent to the tribunal every year), few weeks behind in rent, bit dirty, but year on year will stay, eventually pay rent, but not maintain the front lawn.
Some people don't like regional investing, they want to drive past the house every week.
Others don't want to have to do much work, no point buying a block you can sell the back yard off if you don't want to do that, same with reno.
Buying sight unseen and never every seeing your property is very uncomfortable for many.

You need to work out what you like and don't like, which could mean you buy something, work out that you can't sleep because of it, sell it and ignore that style of property in the future.

There is plenty of variety and opportunity which is why most here are happy to give knowledge, if this was really difficult people wouldn't want to share, the diffiuclt part is fitting the investing to your personal style.

Hope that explains or hints at what I mean.

Cheers
Graeme

 

[jingo]

Doesn't really matter if you are looking at cf+ or not you need get sort out the sleep at night factor (SANF), what can your stress meter deal with.

Some people are not comfortable with "high maintenance" tenants, (those that need to get sent to the tribunal every year), few weeks behind in rent, bit dirty, but year on year will stay, eventually pay rent, but not maintain the front lawn.
Some people don't like regional investing, they want to drive past the house every week.
Others don't want to have to do much work, no point buying a block you can sell the back yard off if you don't want to do that, same with reno.
Buying sight unseen and never every seeing your property is very uncomfortable for many.

You need to work out what you like and don't like, which could mean you buy something, work out that you can't sleep because of it, sell it and ignore that style of property in the future.

There is plenty of variety and opportunity which is why most here are happy to give knowledge, if this was really difficult people wouldn't want to share, the diffiuclt part is fitting the investing to your personal style.

Hope that explains or hints at what I mean.

Cheers
Graeme

Great post Graeme,

You have to be comfortable with your investment in order to stay the course. I have a couple of IP's where the tenants are as you describe. They pay behind etc - very annoying!

I have other IP's in inner areas of Melb. While these are great for capital growth, tenants come and go regularly.

Being able to keep the big picture in mind is important for staying the course and reaping the rewards in the long term. (Not always easy to do!).

Regards Jason.

 

[Aaron Sice]

i can find you a bundle of CF neutral stuff in WA - all brand new.

the best value is just completed or less than 2 years old - tenants love them and you're not "buying forward" and paying 2 years' of CG to the developer while you're building.

you pay market.

 

[RumpledElf]

Basically, if a property was not getting a MINIMUM of 10% yeild, then we would not go near it. We had a couple with 20%+ yeild. We sold out of both of them. Although the yeild was good both houses had neighbour problems. We got a small CG with each.

Sounds like us - we're low income accidental investors. My other house has neighbour problems but (un?)fortunately I have tenants now that aren't much different to the neighbours.

Turns out I've fluffed the finances on our current house and if we rented it out tomorrow the yeild vs loan is over 20%, or 6% vs current valuation. We bought it in 2008. We fixed it up and it has tripled in value - quadrupled with the subdivision. Our income has been picking up recently so keeping it is now looking like a better option than selling it, even more so considering just how SLOW it is to do anything property related on a low income.

I'm currently rearranging the house like crazy as it is very small and we need to fit 5 people in it for at least the rest of this year and we really can't afford to rent with the craziness of market rents here

Funny thing is, with the house rented and an extra person in the house our after-tax income will be over $70k. I may have to get out of the 'low income' mindset at some point, it is amazing what a huge difference highly CF+ properties do to the bottom line. We're just putting a LOT of money into savings so we feel poor ...

 

[The Y-man]

Graeme, what do you mean when you say it may not fit into one's investing style?

In addition to the posts above, you may wish to consider things such as commercial/industrial properties, or owning units in listed/unlisted REITs...



Cheers,

The Y-man

 

[neK]

I think i do fall into the mindset of it having to be physical (ie i can drive past to see it), but im trying to let that one go. Owning units in listed/unlisted property trusts are a bit out of my comfort zone at the moment.

 

[stinadaze]

Thank you all for your feedback.

Thanks Properunity for those formulea too! i've been happily using them these past 2 days!

I am not too concerned about not being able to "drive past" the property really. we were going to buy in NSW as it is the state we really know anything much about! we can always learn but it will take us quite a while i think and we want to invest soomer rather than later. we've been in Australia for just over 2 years and im still only now learning about NSW! maybe I'm a slow learner!

 

[Aaron Sice]

the less i have to think about a property, the better.

who'd want to check up on the thing every week? seriously!

 

[skater]

who'd want to check up on the thing every week? seriously!

LOL! I can relate to that. I have several local to me, and the only time I drive past them is when I have to. Usually when some maintenance needs doing.

Although, for some of the ones further afield, if I am in the area, I like to cruise past, just to see that the things are still standing. We had a friend driving past one in Regional Vic, just recently. I asked could they please drive by, since I hadn't seen the place in years. They did so, and even took a photo for me. It looked fine, that will do me for another five or so years now.

 

[devo76]

the less i have to think about a property, the better.

who'd want to check up on the thing every week? seriously!

I'm guilty of this. Drive past one on the way to work and another on the way home. It's a blessing and a curse depending on how they look on the day

 

[Ausprop]

really draining.. I have been running a very lucrative holiday rental over the summer but frankly I am over it. I am turning 40 next year and last night as I drove home at 2am I vowed to move to a more passive investment style.

 

[The Y-man]

I think i do fall into the mindset of it having to be physical (ie i can drive past to see it), but im trying to let that one go. Owning units in listed/unlisted property trusts are a bit out of my comfort zone at the moment.

You can still do that with property trusts

Some trusts are set up for a single building, others have a tight portfolio. I know of at least 7 buildings where I can drive past and go, I own (a very tiny) part of that!

Cheers,

The Y-man

 

[The_Bludger]

None of my ip's yield more than 4%. I'm a high income earner and going for growth. CF+ props generally only pay for interest payments and other associated holding costs. They won't ever make you a lot of cash. Props that double ever 7-10 years will. And they generally have a 3.5-4.5% yield and negatively geared.

 

[Nth Brisbanite]

Positive cash flow properties

I've been doing a bit of research on National Rental Affordability Scheme (NRAS) properties. With the $8600 incentives offered by the Federal and State governments, most of them become either cash flow positive or very close to it. There was a feature article about them in the latest API magazine. The companies featured in the article are finding it hard keeping up with the supply such is the demand.

I'm going to put an expression of interest for one of these properites.(possibly 2 if my broker can get the extra finance). They are well located in Loganlea which is 26km south of Brisbane CBD. As they are all new properties, I'll get high depreciation allowances which will make me even more cash flow positive.

I've also been researching the Surat Basin area where there are huge resource developments going on at the moment. In Chinchilla, there is a shortage of rental accommodation for all the new workers that are flooding into the area. All the new houses going up at the moment will be cash flow positive.

 

[Samwise]

Different styles might include

1. cashflow +, low growth --- because you have a low income
2. cashflow -ve, High growth ---because you have a high income
3. A house thats needs a reno, revalue then higher rent
4. cashflow + because you have hit the seviceability wall
5. cashflow - because all your other IP's are now CF+ because of rent rises

None of my ip's yield more than 4%. I'm a high income earner and going for growth. CF+ props generally only pay for interest payments and other associated holding costs. They won't ever make you a lot of cash. Props that double ever 7-10 years will. And they generally have a 3.5-4.5% yield and negatively geared.

Interesting posts... i think i am style 2 person!

Bludger - what sorts of areas do you invest in? What sort of properties?

I had been thinking along these lines recently and refreshing to read someone not banging the CF+ drum for once...

 

[MTR]

My properties are in the shoalhaven which has 5% returns on average. At first look good returns are not there but they do pop up. Some examples are

home in cbd split into 3 units 1000 sqm subdividable block.
Asking $300,000 renting $430 pw.

Duplex. 2 bedder and 3 bedder.
Sold $258,000 rents for $500

cbd house with seperate metered granny flat. 1000 sqm corner subdividable block.
Sold $300,000 ish rents for $455

these generally pop up frequently. They don't stand out at first but if you are looking you will identify the key features.

Hi Devo

I just purchased my first IP in Syd, 32km out.

$315,000 renting for $500 pw; 3 bedroom house + granny flat.


I have been looking for a while, they come up from time to time but they also get snapped up very quickly. When I call most are already under offer.

Cheers, MTR